Unemployment
Unemployment is part of the IB syllabus for macroeconomics . It is also part of the AP Macroeconomics syllabus for Economic Basics, Measurement of Economic Performance, and Inflation, Unemployment, and Stabilization Policies Unemployment occurs when a person is seeking work but currently without work. Full employment and underemployment Underemployment is when workers who have a high level of training are employed at jobs which they are overqualified for, wasting their skills. This practice is inefficient. An example of this is a doctor who works as a "bus driver". A common thing that happens is that foreigners from other countries entering a country that doesn't see their great skills or it isn't recognized by the people. Most of the time the underemployed are often competing for available jobs. Underemployment can become a problem when the unemployment rate drops below 4 or 4.5 % (full employment), this shows that people are not moving from to jobs, some short term unemployment is good because it means people are searching or a job in their skill set. Full employment is when all or nearly all people who are able to work and willing to work can work at a certain wage. Also full employment is when all available labor resources are being used in an economically efficient way. Full employment doesn't mean that there is zero unemployment. Sometimes it is defined as cyclical unemployment or 0% unemployment. The remaining unemployment is frictional. Full employment has been used with long-run aggregate supply curve. Full employment is the quantity of labor that is used when the labor market is in equilibrium. Also Full employment can be attainable within an economy but may result in an inflationnary gap. The inflationnary gap would probably result from the workers having more disposable income, which drives the prices upward. Also, it means that when unemployment rate = natural unemployment rate which comes from frictional and structural factors. '-Full employment doesn't mean that the actual or reported unemployment rate is zero, it only means that cyclical unemployment is 0.' '-On a graph of AS/AD, full employment is anywhere on the LRAS curve.' Unemployment rate Unemployment is the percentage of the civilian labor force that is currently unemployed. It is the percentage of people who want to work and 'are actively seeking employment. It is equal to the number of unemployed persons divided by the civilian labor force. The civilian labor force is made up of anyone able to work (children, institutionalized people ect. do not count in this category). Unemployment rate (U)= (Number of unemployed persons/Civilian labor force)x100 -There are 5 different types unemployment: ''frictional unemployment, structural unemployment, natural unemployment, seasonal unemployment and cyclical unemployment. For more information on these different types of unemployment, see: Types of Unemployment below. Costs of unemployment There are three main costs of unemployment. For the first cost the government has to increase social benefits. Which means that they would have to either raise taxes (which is unlikely because hardly anyone could afford to pay them), create a higher deficit because the government would have to spend money it does not have (which is the most common action the government takes), or cut infrastructure building programs, which would ultimately hurt the economy in the long run. The second economic cost of unemployment is the aggregate demand decreasing. The consumption would decrease because all of the people who has been laid off or fired will have less money to spend, thus the aggregate demand would decrease. Finally the Gross Domestic Product would go down because there would be a decrease in aggregate demand. The Gross Domestic Product would also decrease because of the waste of resources and because of the deskillment of the previous labor force. Since there are so many unemployed people, there are less people working. Since there are less people working, there are less resources being used up. So there would be a excess of resources left that will not be used. That is wasteful and the resources could be used more efficiently. Deskilling is what happens when someone has not worked in a while. If a person does not work on a skill that they have, they will either lose it or become less efficient in it. Which is bad because it puts them at a disadvantage to a person who is still in work and is practicing their skills, that means that they are less likely to be hired and more likely to stay unemployed. The final and huge cost of unemployment is the social cost. The social cost of unemployment is the decrease of the unemployed person’s self esteem. For most people their job is a part of their identity. If they lose their job they lose a part of themselves and who they are. What happens when their self esteem goes down is that they become depressed. When they become depressed many bad things happen such as they could start abusing drug and alcohol substances, or even start abusing their spouse, family and friends. A lot of people when they become depressed may commit suicide because they cannot cope with their situation. Types of unemployment • Structural Structural Unemployment: There are four types of Structural Unemployment: Regional, Sectoral, Technological and Discriminatory. A type of unemployment resulting from people having skills and training that do not have jobs avaliable in that field. For instance, if there are 40 open jobs for barrel makers and 50 barrel makers, 10 people will be unable to get a job. Even if there are 10 open jobs at a computing firm, these barrel makers will be unable to get jobs because they do not have the trade skills to get a job at the computing firm. Structural unemployment also refers to people that are unable to get jobs because their location does not allow it. An example of this is a person who knows how to work with oil, but lives in a place that has none. Many technological advancements like robotics have resulted in structural unemployment. • Frictional Frictional Unemployment: A type of unemployment that occurs because people do not always take their first job offer and businesses do not always hire the first person that applies. Example: Ryan works at the University of Minnesota library. After graduation, it takes him six months to find a new job. He is no longer unemployed, but had six months of frictional unemployment. This is the most common type on unemployment because it is caused by changing market conditions such as time and lack of coordination. • Seasonal Seasonal Unemployment: A type of unemployment that occurs when a worker can only work during a specific season, and when those seasons are over, they no longer employed due to lack of need, and are thus seasonally unemployed. An example of seasonal unemployment would be workers hired by farmers during the spring to help plant crops, and again during the fall harvest, ceterus paribus. These workers are employed during two seasons, but during the winter and summer, they have no jobs. Another example of seasonal unemployment would be exterior house painters. They can paint only during the summer, and during the other three seasons, they are unemployed (at least in cold climates where there is a severe winter such as in Minnesota). Another example is the ski instructors. They can only teach when there is snow on the ground. meaning thet are not employed throughout the rest of the year. • Cyclical/Demand-Deficient Cyclical/Demand-Deficient Unemployment: A type of unemployment that occurs when there is not enough aggragate demand in the economy. Cyclical Unemployment gets its name because it enteracts with the buisness cycle. Demand for most goods and services falls, less production is needed and consequently fewer workers are needed, wages do not fall to meet the equilibrium level, and mass unemployment results. Basically this this type of unemployment means that there are too many unemployed workers and too few jobs needed to be filled. Cyclical unemployment rate(Uc) = Unemployment rate(U) - Natural unemployment rate (Un) Measures to deal with unemployment '''Costs of unemployment: *Transfers increase *Governmet spending increases *Taxes increase *Deflation *De-skilling *GDP decreases *Self esteem decrease *Causes Anomie (general feelings of disconnection from society) Demand Side Policies (reduce cyclical unemployment) *Lower interest rates (monetary policy) *Lower exchange rate by increasing the money supply *Employment subsidies (like the New Deal program) Supply Side Policies (reduce frictional and structural unemployment) *Change on taxes *Decrease social benefits *Increase spending on education and job training *Job Creation Natural Rate of Unemployment NAIRU: Non-Accelerating Inflation Rate of Unemployment is another name for the natural rate of unemployment. The reason it is given this other name is this: Economist Milton Friedman argued that any and all market economies must involve some unemployment (see above). This natural level of unemployment was titled just that. Unexpected inflation might allow unemployment to fall below the natural rate by temporarily depressing real wages, but this effect would dissipate once expectations about inflation were corrected. Only with continuously accelerating inflation could rates of unemployment below the natural rate be maintained. At the natural rate of unemployment, inflation was not continuously accelerating, as it was below this level. To say this in simpler terms, the natural rate of unemployment occurs at equilibrium when the long run and short run phillips curve interesect on the unemployment vs inflation graph. This can be seen in the diagram below. The vertical line is the long run phillips curve. The downward sloping line is the short run phillips curve. Category:Macroeconomics Category:Inflation, Unemployment, and Stabilization Policies (AP) Category:Economic Basics (AP) Category:Measurement of Economic Performance (AP)